Q2 2026 Fund Commentary

Commentary and opinions are provided by CGOV Asset Management.

Market commentary

Following the inflection point that began with the outbreak of the conflict in the Middle East, the Canadian equity market continued its steady rise during the quarter, although sector leadership shifted meaningfully. Resource companies underperformed, and the quarter marked the first time in 18 months that either the materials or energy sectors posted negative quarterly returns. Industrials and financials led the market higher, with Canadian banks reaching all-time-high valuations despite rising loan delinquencies and slowing gross domestic product growth.

From a broader perspective, geopolitical and economic uncertainty didn’t dampen the longer-term strength of the Canadian equity market, which reached a four-year annualized return of 20% for the first time in roughly two decades. The strongest-performing sectors were financials and health care, while materials and communication services were the weakest-performing sectors.

Performance

Security selection in the communication services and industrials sectors, along with a lack of exposure to the materials sector, contributed to the Fund’s performance.

Bank of Montreal (BMO) contributed to performance. BMO is Canada’s oldest bank and a leading commercial lending franchise in North America, with an experienced management team that has taken a long-term approach to growing the business in both Canada and the U.S. During the quarter, the bank’s stock outperformed along with most of its peers, helped in part by growth in its wealth management division, which completed the acquisition of Burgundy Asset Management Ltd. last year.

National Bank of Canada also contributed to performance. The bank provides a full array of banking services, including retail, corporate and investment banking, along with securities brokerage, insurance, wealth management and mutual fund and retirement plan management. The company has a strong presence in Quebec and an experienced management team with a consistent track record of earnings growth. Canadian banks broadly performed well in 2026, with all six of the largest names advancing more than 20% during the quarter. Much of the strength in bank results has come from wealth management and capital markets, where industry consolidation and strong equity market results have driven asset growth. National Bank of Canada’s growing wealth management and exchange-traded fund business, along with its leading capital markets division, have been important growth drivers in recent months.

Security selection in the information technology and financials sectors detracted from the Fund’s performance.

CME Group Inc. detracted from performance. The company operates the world’s largest derivatives exchange, offering futures and options across interest rates, equity indices, foreign exchange, energy, agriculture, metals and cryptocurrencies, along with clearing services through CME Clearing. The business earns fees on trading volume and clearing, which supports high margins and strong cash generation. The stock underperformed recently because of increased competition and a return to typical trading volumes following volatility earlier in the year.

Metro Inc. also detracted from performance. The company distributes food and pharmaceutical products through an expansive network of grocery and drug stores in Quebec and Ontario. In the sub-advisor’s view, Metro Inc. benefits from the attractive structure of the Canadian grocery sector, strong pricing power and a top-tier management team with a track record of operational excellence. The company’s stock came under pressure during the period, potentially because of ongoing labour disruptions at a distribution centre affecting teh company’s broader operations.

Portfolio activity

There were no significant changes to the Fund’s portfolio during the quarter.

Outlook

In the sub-advisor’s view, the Fund is composed of high-quality businesses that could withstand challenging conditions and is currently trading at an attractive discount to its intrinsic value. The sub-advisor believes these qualities may position the portfolio well for long-term success.